Wednesday, July 7, 2010

IMF just want a country to increase its exports or decrease its imports to improve Balance of Payment situation. Increase in exports in short term is not possible, every country tries its best to do it and if it hadn't met this challenge before then how can it is possible that it will do it after IMF loan. So the only real policy of IMF is that a country reduces its imports.To meet this challenge they impose a number of restrictions on a country so that it can reduce money supply with in its Country. They also monitor this activity and then give their first grant of Loan.

The measures to decrease money supply within a country include reducing fiscal deficit, increasing taxes, increasing price of goods, devaluation of currency which all result in decreasing of country's money supply, Lower standard of living, Increase in Unemployment, Decrease in Investments and Lower Output of the country.

For a country to grow it is necessary that it import goods and keep on doing it until it meets a certain elasticity.